Hearing Aids, Monopolies, And Why The Health Industry Is Ripe For Disruption

from the can-you-hear-me-now? dept

Recently, we saw a huge reaction to the story of how a patent lawsuit was threatening to silence a little girl by shutting down a speech-assistance iPad app that is her only means of communication. For many people, the focus of that story was the human cost of patent warfare—a valid and important topic to be sure. But the story also points to another, larger issue that is bound to get more attention in our increasingly entrepreneurial culture: the health and wellness industry is in serious need of disruptive innovation.

TechCrunch has a post looking at another area that is very similar to speech assistance devices: hearing aids. The market for these devices is old and stale, dominated by a few key players who have cushy exclusive deals with doctors that allow them to charge exorbitant prices (averaging around $3000), but a year-old startup called Embrace Hearing is beginning to shake things up by selling $300+ hearing aids directly to consumers. They discovered that 75% of Americans who qualify for hearing devices don't actually use one, and the number one cited reason is high price. But they also know that those high prices are mostly artificial:

Audiologists (health care professionals who specialize in hearing, and the loss thereof) control the majority of sales in the U.S. market. While these specialists provide essential services, they use the sale of hearing aids to their own gain, often charging markups of three to five times — because they can.

Not only that, but the clever business people they are, they bundle re-fittings and follow-up visits into the cost, generally using this as the explanation for why hearing aids cost so much. The Embrace co-founders say that the reality of the situation, however, is that only 20 percent of customers make five or more visits to audiologists in the year after being fitted for the device. For those who fall into that category, the insurance and other benefits might make sense, but for most it doesn’t.

That, my friends, is what you call a market opportunity. Interestingly, the TechCrunch post doesn't discuss patents, instead focusing on other factors that have limited the market: the aforementioned exclusive deals with doctors, the lack of entrepreneurial presence since hearing aids aren't a "sexy" product, and the fact that many people are uncomfortable bypassing a healthcare professional when purchasing something like this. Embrace Hearing is turning all these problems into opportunities: they work with a new manufacturer who has no exclusive deals, they are trying to make hearing aids sexy (social stigma is the #2 reason people who need them choose not to buy them), and they are working on an online tool for testing your hearing.

I do wonder, though, if they will face patent problems in the future. Their German manufacturer is presumably operating in good faith, but that's never stopped a good patent showdown before, since aggressive companies like to use their patent portfolios as a way to control the market and crush competitors, regardless of how valid those patents are or whether any genuine infringement is taking place. If Embrace Hearing grows and is perceived by the incumbents as a threat, it's quite likely that they or their manufacturer will face litigation. Of course, all this just tells you they are on the right track: when the kings of a particular market defend their thrones through exclusive deals, patents and other monopoly protections—rather than by actually competing—it's a surefire sign that the market is underserved. And where there's an underserved market, entrepreneurs will eventually move in to capitalize on it. When that happens, existing monopoly protections can only delay the inevitable, but they can cause very real harm by doing so—and in an industry that effects the quality of life of millions of people, the public backlash against these monopolies can be huge. Any company that operates in the health and wellness space by selling at huge markups and relying on exclusivity would be wise to start thinking about their future in the long-term: if they don't meet the demands of the market, someone else will.

Re:

business model-- made of balsa and pasteboard

This may be an astoundingly naive idea, but... what about a company designed to be expendable? It starts small and stays small, enters the market with small initial outlay, makes a modest profit-- which is funneled directly to the investors, leaving the company always at the edge of bankruptcy.

When the big players sue, it folds like a house of cards; it's an LLC, so the officers aren't liable, the offices are rented, the manufacturing is outsourced, the whole thing can be annihilated with the stroke of a pen. The CEO shows up in court with some loose change and the corporate death certificate.

The employees go home... and the founder sends out email offering everyone a job in the new startup, opening tomorrow and doing the same thing the same way. More investment spawns more such companies, not bigger ones.

Surely the lawyers have already thought of this, and come up with a way to stifle it...

Re: business model-- made of balsa and pasteboard

1. I understand why you're proposing this, and I agree with the goal -- to evade the greedy monopolists who want to keep making money for doing nothing.

2. However, I have to tell you that this is not a new idea. Spammers and spyware companies have been doing this for the better part of 20 years. See "Sanford Wallace" for one of the canonical examples. And it works beautifully for them.

Re: Re: business model-- made of balsa and pasteboard

Re: business model-- made of balsa and pasteboard

Actually sounds like a neat idea. I think the trick would be to split it up even more.
Have your disposable company be the "manufacturer" but put another layer on top with no liability, which would be the retail part. "We don't make the things, we just sell them."
Then add in multiple disposable companies as suppliers. If the reseller has 10-20 suppliers, and suppliers randomly go "bankrupt" making room for new suppliers in the market (kinda like a shell game), it seems like it would be really tough to take anyone to court.
With just in time manufacturing you don't need a warehouse.

There's a episode of How It's Made (its on Netflix) that shows the production of hearing aids, and they really aren't that complicated of devices.
The only specialized part is getting the mold of the patients ear. Since they are custom fit for the patient, you could just make them in bulk in China or wherever. However, you could get the core electronics in bulk, and design a fitting process around those cores that would remove a lot of the complication.

So the retail portion would take a mold, send it to whichever supplier was the "it" one that week, and the supplier to cast around a core, and then ship it back.

If the investors also happened to pick up a out of business strip mall or something, it would be a really handy location to put a handful of suppliers at really high rental rates. That would really effect the suppliers profits.

Re: business model-- made of balsa and pasteboard

Re: business model-- made of balsa and pasteboard

This may be an astoundingly naive idea, but... what about a company designed to be expendable? It starts small and stays small, enters the market with small initial outlay, makes a modest profit-- which is funneled directly to the investors, leaving the company always at the edge of bankruptcy.

A form of this has been my business model for a long time, and it works extremely well. I start a company to produce a single product, develop, market, and sell that product on a relatively small scale, then either sell the company to a bigger fish or close it down. I don't leave debt, so there's no bankruptcy, and I come out of it with a very nice profit and a bankroll to start the next project.

There are advantages and disadvantages to this approach, mostly centered around scale, but it works for me.

A hearing aid is basically a small microphone joined to a small speaker by a small microprocessor, all powered by a small battery. The device is conceptually simple, and given the big reductions in the cost of electronics over the past decade, one would think hearing aids would be much cheaper now. But they are not.

On top of the patents, dispensing of hearing aids is layered in gov't regulation. You can buy earphones to blast your favorite music from any retailer. But hearing aids that essentially do the same thing must be sold only through licensed audiologists, and the aids have to be medically approved, etc., etc.

Repairs to hearing aids are also expensive ($300 per aid, in my case), but still cheaper than buying new replacements. The typical life of a hearing aid is about 5 years, although I've made mine last as long as 10 years.

It would be great to see more of a hacker market in this space, where people can buy the parts and make their own hearing aids.

Re: definitely a patent minefield

must not be true everywhere, you can buy those over the counter ones here, and from what I have been told they work as well or better for many people then the ones that cost a mint even with insurance.

I have 5 people I know who either got units for themselves or for family members from bi-mart.

these units where "cheap" (less then the cost or repairing the old one) and apparently had better volume and freq attenuation(via small screws on side)

they didnt have a custom ear piece BUT you can get that done a few places, even in home kits to do it yourself and send off for the plugs you need(as one of my friends has done for years with IEM tips) the molding process is what costs alot in this case, but once done, the new tips are cheap if using the same molds.

many of these "complex dsp"s your talking about arent really that complex, read an artical about it, some of them are as simple as a set of resistors and caps(very small) to turn the audio to the patients needs(freq shifting)

the reason they charge so much is because the can....and if you ask some "free market" lovers its a good thing it is the way it is.....if you ask me....its idiotic....specially seeing as i know a couple people who got aids replaced over seas with better units for far less then they could pay here for worse units.....gotta love the USA....greeeeeeed!!!!

Re: would have been nice to link the techcrunch article

I think it's clear by now that patents and copyright are broken and do much much more harm than good. Trademarks in a bit lower level. The question is: how long will it take for our Governments to see the obvious? I won't put any hope in the US Govt because they are fueled by the money those companies make from their abusive use of patent/copyright but I do believe the rest of the world can move on.

how's this for disruption...

how about replacing hearing aids with an app? any smartphone with a pair of earbuds is all the hardware necessary to function as a hearing aid. also, it looks cool which can be important to kids especially.

there are different types of hearing loss, but what the priciest hearing aids do is to selectively amplify only the frequencies you have difficulty hearing. this is where a professional audiologist comes in. they will perform a battery of tests to determine your frequency response and program a hearing aid to your profile.

it is very tricky getting around the trained audiologist step because we need to make sure the customer is not destroying their remaining hearing by blasting themselves with too much volume.

keep in mind that the actual hearing aid is the same dsp that is in every single cell phone and likely costs less than $1.00 (us) but still they sell for thousands.

Thinking

Any company that operates in the health and wellness space by selling at huge markups and relying on exclusivity would be wise to start thinking about their future in the long-term: if they don't meet the demands of the market, someone else will.

The problem is, companies don't think, people do. And many executives don't care about what happens to the company after they retire. At some point this will catch up to someone who is in charge when the collapse happens, but for him it will be too late. Unless he's managed to make the company too big to fail, of course. Then the failure is rewarded.

The hearing aid industry.

The hearing aid industry is bigger, and much more complex than most people realize.

First: Why are hearing aids so expensive. Well mark up is just a minor part of the costs. Hearing aids are very complex. Think about an expensive home stereo, one with all the sliders that most users have no clue what they do... Now shrink two of them and put them in your ear. A good hearing aid will be able to amplify specific ranges, while protecting other ranges. If you have a loss in the 1.5khz range, a good aid will boost that range, while keeping the 1khz and 2khz at a safe volume to prevent your hearing becoming worse. Aids can also do phase shifting, so if you can't hear 1.5khz, those sounds can be shifted to 1khz, or 2khz... This is where the fitting comes in and why it's so important. Audiologist often offer this part for free, but recoup the costs as part of the aid's mark up. Other costs of the aid could include wireless communication so aids can talk to each other, adjust their output automatically, connect to a media streamer (connected to a TV/Radio)...

Second: One if the biggest issues that causes such a flux in price range is that hearing aids are a class 1 medical device (in the US). That is the same class as a toothbrush, a cane, elastic bandages, etc. That means any yahoo can sell a hearing aid that can cause massive damage to your hearing. These tend to be the "Make everything louder" type and are very cheap to make. I've seen one set advertised for $50... just order 'em and stick it in your ear! Yeah... great idea.

Re: The hearing aid industry.

First: Why are hearing aids so expensive. Well mark up is just a minor part of the costs.

That is true if there is healthy competition. If there is very little competition, and particularly if there's collusion between a small number of big players, markup will be a much more significant portion of the price.

All that stuff you mentioned is about the technology of hearing aids, not the economics. With strong competition, the need for miniaturization has never been a long-term deterrant to innovation and dropping prices in any other industry. I don't see why it would be any different for hearing aids.

With all that said, I don't know anything about the industry, I'm just speaking in generalities and trying to apply them to this business.

Re: Re: The hearing aid industry.

There are 6 major hearing aid manufacturers, some of them have sub-brands.

As for the tech I mentioned, all of that tech is constantly being developed. That adds to the cost of the aid.

Then add in what Laura Grasso pointed out, the cost of having a trained Audiologist fit the hearing aid (the most important step IMHO), and the fact that most health insurance agencies won't cover hearing aids...

Re: The hearing aid industry.

I have build some external audio amilification devices(external hearing aids that use headphones/earphones for output)

there are some good kits out there if you dig around, the biggest thing if you want to phase shift or only boost specific freq's is to find the proper design with the proper chip, much like a cmoy amp, you can make the same unit sound very dif with different chips, not to mention the correct pots for various freq's.

I made one for a friends grandfather who had hearing loss from the war(ww2)years ago, he couldnt afford the cash cost of getting the aids(despite being a vet and having medicare he was expected to pay almost 2 months income to get the units replaced), after some tweaking using some quality earbuds he was very happy, it wasnt that it was really loud, the issue was he had loss in a specific range where human voice normally is, i tried 6 or 8 dif chips, found the one that worked best at stock settings for him, then tweaked the range he had loss in up, NOTE: i could put them in my ears with good hearing and not feel they where to loud to listen to, and I DO NOT LISTEN TO MUSIC LOUD.

he used that unit for many years, till he moved to a retirement community and got lucky that they helped him get proper aids for both ears, but, i hear he still used them for tv watching. (i used a modified altoids can for the housing) the whole unit was under 75bucks to build even with the extra chips and rechargeable 9v batteries.

I do agree the "amp everything to hell" type are bad" but they are what some people are driven to by the high price of fitted custom hearing aids to harm their remaining hearing.

The thing is, I really this this is part of the goal of these companies, make people burn their hearing out to the point they need custom units to function, then they are hooked for the rest of their lives into your products.

wouldnt surprise me to find that those companies are also some of the ones selling those mail order noise amps that burn out peoples hearing......

Problems.

I have a friend that has Tone loss..To many machines.
And the persons he has gone to for a hearing aid, tend to think LOUD, BEATS tone loss..
He needs an Aid to shift sound UP 1-2 Octaves, and he can hear pretty well..
Then comes the COST. Avg suggested cost is $1000+ for anything decent.

Oof

Well meaning, but this post is -- hate to say it -- ignorant on a few levels.

Certainly there are audiologists irresponsibly using markups and bundling, but there are excellent ones who don't.

Hearing loss is incredibly complicated. It's absolutely nothing like getting a prescription for you eyesight, putting on glasses, and voila!

The assertions that cost is the number 1 reason and social stigma the second as to why hearing aids are not worn by most people who would benefit are mostly unfounded. Other surveys find that the first reason is the belief that they don't work so well / won't give the wearer enough benefit to be WORTH the cost (and stigma).

An audiologist -- again, a good one -- must be really very skilled to fit each, individual hearing loss. The travesty is not just the sticker price of hearing aids for consumer. It's the insanity that health insurance plans almost universally pay for none or only very little of hearing technology.

Lastly. To the commenter saying hearing aids can never be sexy: don't underestimate the power of design, which has not yet been applied to hearing technology. In a time where it's become commonplace to walk around with buds shoved in your ears, not to mention cuffs, and more, the time is ripe for an entrepreneurial spirit to hit the hearing aid market with some beautiful designs for the ear.

Re: Oof

Can you type this a little more slowly? Marcus has a hard time figuring this stuff out. Thanks for once again handing the dufus his ass after another gloss-over, surface only look into a complicated area.

Re: Re: Oof

Oh you sad little man. Can't even see a life lesson when it's staring you in the face.

I took Laura's comment to heart because - listen up now - she wasn't a huge asshole about it. I've been looking more into this stuff and am considering a followup post - she has some excellent points (though her word is not gospel, and I have already found differing opinions)

Conversely, I have no interest in listening to anything you say, and neither does anyone else here. Can you figure out why?

Go ahead and contemplate that for awhile. You might learn something about yourself.

Don't forget

that hearing aids and other medical devices don't benefit from the economy of scale. Apple cuts the cost of Macs, iPads, and iPhones by making millions of them. If you are making them in the low hundreds or a few thousand, then the cost would be much much higher.

Re: Don't forget

And sadly Apple has dragged its feet for years and is now on the verge of being FORCED by the government to spend some time and effort on including the needs of the deaf in all of their whiz bang products.

They have been a profoundly bad example for corporate America and by their getting away with things so long way too many deaf people have been kept in needless isolation.

I have a hearing aid

Matter of fact, I have two, but the one only transmits to the other, because the one side is functionally deaf, or "un-aidable". It works pretty well, and I am very happy with it, but the cost is truly scary. This setup cost me over $3000, and my last one was $2000. They don't last forever, the technology is always improving, and my hearing is always worsening, thus making getting a new aid every so often kind of unavoidable.

The fact that most insurers will not pay for them is what is keeping most people who need them from purchasing them. I have plenty of friends and family who really could benefit from an aid, but cannot afford them, so I have to speak louder to them than I would like. If I live to retirement age, you can bet I won't be buying any more hearing aids on a fixed income. Medicare will not pay for them either. It's too bad, because hearing impairment makes your life far more difficult than it should be, but if I had a choice between hearing better or putting food on the table or paying the rent, I'll choose to hear worse.

If there were enough demand, and unit sales volume were to get high enough, perhaps the prices would come down, but I doubt it, so competition such as this is undoubtedly a good thing. Yes, you may not get all the technological sophistication available at that price, but any improvement in your hearing is better than none, so I hope to see more of this. If the price of hearing aids came down to the sub-$1000 range, it would probably attract quite a few more buyers, and if it were to go below $500, the possibilities are huge.

Embrace hearing is doing nothing new

I know the "tech community" likes to write articles about companies like this "shaking things up", but the fact is, they are doing nothing of the sorts. Selling hearing aids online (and the way they are doing it), has been around for a decade. They are doing nothing new. Those companies come and go, and I make you this promise, they will leave just like the rest of them. I've been in this business 30 years and seen it all. Online sales of hearing aids is not sustainable. I wish it was, I would be making a fortune. These guys will see in time.